Editorial: Cows hoofing it out of state

2012-12-03 15:57:48

Government interference with the free market can have adverse effects. It skews prices, inflates or depresses profit and distorts supply and demand. Washington has honed this practice, but California is no slouch.

Typically, government acting at the behest of industry lobbyists bestows unearned and unjustifiable benefits on chosen winners, leaving a trail of undeserved and unjustifiable adversity for losers, who include competitors, consumers and others only tangentially related. Unintended consequences are unleashed every time the government intentionally "helps."

What happens when byzantine federal regulations and state interventions combine, as they have for California's dairy industry?

"It's not just millionaires and billionaires who are fleeing the economic madness in California," writes Bill Frezza of the free-market Competitive Enterprise Institute, who also is a Boston venture capitalist. "Even cows are starting to depart for greener pastures." Migration of dairies with a total of 400 cows to Kansas in November is but a sampling of more than 100 California dairy farms soon to close their doors, he said.

Consequences of state and federal meddling include artificially high prices for milk, cheese and other dairy products, essentially a hidden $5 billion tax. As with all passed-through costs of government intervention, it is difficult for consumers to identify the real culprits. But favored producers know they are profiting from the special treatment.

Dairy industry regulations are examples of a larger problem examined by others at the CEI think tank.

The dairy industry already is beset with a complex web of price supports, market orders, direct payments, diversion programs, herd reductions, import barriers, export subsidies and "stacked-to-the-rafters cheese warehouses" as a result of federal regulations benefitting a select few, Mr. Frezza noted. Under crony capitalism's minimum legal price on milk, "Selling milk for less can actually land you in jail."

California cheese makers have more political clout than dairy farmers, resulting in the minimum price of milk in California being 2 1/2 cents per pound less than in other states. That is coupled with skyrocketing feedstock prices, thanks to another government-inspired diversion of much corn to make subsidized ethanol.

Rather than ship excess milk out of state, Mr. Frezza writes, "California dairy farms are shutting down and shipping their cows to states with higher minimum prices, allowing them to contribute to the glut there. ... Cheese lobbyists just smile, knowing that they have more legislators in their pockets and can afford to sit tight. That's just how central planning works."

None of these inequities would exist had Congress and the Legislature understood, as Mr. Frezza stated, that they have no business setting milk prices to begin with.